ii view: shoppers return to British Land sites

Campus office developments, a bias towards retail parks and a restarted dividend. Buy, sell or hold?

Operational update

Chief executive Simon Carter said:

"With lockdown restrictions lifting, we have seen a notable improvement in activity across our markets and our business is performing well. Our flexible workspace offer, activity is above pre pandemic levels. Elsewhere on our Campuses, we see good occupier interest for new and refurbished space, which we expect to be supportive of office rents and values as we move through the year."

ii round-up:

Shop and office property owner British Land (LSE:BLND) today flagged an improvement in activity across its markets since the easing of UK Covid restrictions in mid-May.

Footfall and sales across its retail properties are back to 86% and 94% of pre pandemic levels in the seven weeks since the reopening of indoor hospitality on 17 May. New lettings at its London Broadgate office campus continued to be signed, and overall rent collection had risen to 91% of the group total in March compared to 83% over the last financial year. 

British Land shares rose by more than 1% in UK trading, leaving them up by more than a third over the last year. Shares for the UK’s biggest Real Estate Investment Trust (REIT) Segro (LSE:SGRO) are up around a quarter over that time. The FTSE100 index has gained around 15%. 

Rental collection for British Land’s office properties remained strong with a collection rate of 99% in March. Retail collection improved to 85% in March compared to 71% over the last financial year as a whole. 

Closed retail outlets under pandemic lockdowns have pressured many retailer’s finances, but 85% of total rents for June had so far been paid. 

Footfall and sales at its retail parks continued to run ahead of that for its shopping centres. Retail and fulfilment, or warehouse properties, account for a quarter of its overall portfolio by value. 

Retail parks make up 53% of its retail properties and are increasingly preferred by retailers due to their affordability and ability to support an online offering via click & collect, returns and ship from store. 

Its predominant office campus properties, accounting for around 70% of its total portfolio, are made up by its three campuses at Broadgate, Paddington Central and Regent's Place. A fourth campus at Canada Water is currently being developed and is expected to provide five million square feet of residential, commercial, retail and community space over 53 acres.

First-half results are currently scheduled for the 17 November. 

ii view:

The value of British Land’s property portfolio fell by nearly 11% over its financial year to the end of March 2021 to just over £9.1 billion. The value of its retail properties fell by nearly a quarter over the year, pressured by pandemic lockdowns and missed rental payments. Similarly, office values retreated by a little under 4%. Falls in the value of properties contributed towards a second consecutive year of pre-tax losses of over £1 billion. 

Management is pursuing four strategic priorities to realise the potential of its campuses: continue with value accretive developments, target opportunities in retail and fulfilment and actively recycle capital. Its first urban logistics acquisition was previously purchased in North London for £87 million.

For investors, previous management outlook comments, highlighting the uncertain trajectory of the pandemic and Covid variants, are worth remembering. The changing landscape for retail and the rise of warehouse providers for online fulfilment such as Tritax Big Box (LSE:BBOX) also offers some caution. So does greater home working following the pandemic in relation to its office portfolio. 

But the company’s property portfolio is being actively managed and recycled. It has sold over £1 billion of properties since April 2020. The dividend is now being paid again, albeit at a rebased level, with the shares offering an estimated future yield of over 3%. A EPRA (European Public Real Estate Association) net tangible assets per share value of 648p as of 31 March also stands above the current share price of nearer to 515p. In all, and while the company faces significant challenges, this latest update is more optimistic and existing shareholders might be prepared to sit tight and keep collecting the decent dividend. 

Positives: 

• A diversity of office, retail, logistical and residential property 
• Recommenced dividend payments

Negatives:

• Uncertain Covid-19 outlook
• Some companies may now work from home permanently

The average rating of stock market analysts:

Hold